Wednesday, 13 August 2014

Poverty Line in India: Changing Discourses and Policy Implications

Redefining poverty line by Rangarajan
Committee report 2014 has set a fresh debate on India’s policy implications. It
highlights three out of ten Indians as below poverty line, raising the poverty
ratio to 29.5% in 2011-12 from 21.9%, based on Tendulkar estimation.

Defining
poverty line and the history of counting poor can be dated back to 19th century
of pre-Independent India. The controversy around the term and its definitional
clarity was one of the major concerns for our great visionaries and scholars
like Jawaharal Nehru and Dadabhai Naoroji. The earliest effort to estimate poverty
was Dadabhai Naoroji’s “Poverty and Un-British Rule in India” where he defined
subsistence-based poverty line at 1867-68 prices. Later in 1936, National Planning Committee under the leadership of
Jawaharlal Nehru made an economic review and recognized that “there was lack of
food, of clothing, of housing and of every other essential requirement of human
existence”, and suggested development policy objective ensuring adequate
standard of living for the masses to get rid-of India’s appalling poverty.[i] The Committee identified poverty with sheer necessities for
human existence like, nutrition with balanced diet of 2400 to 2800 calories per
adult worker, clothing with 30 yards per capita per annum, and housing
with 100 sq. ft per capita. Since then both its concept and counting
has undergone several changes in post-independent India.

In 1962, independent India made its first
attempt to define poverty line. A
Working Group with eminent Indian economists and social thinkers like D.R.
Gadgil, B.N. Ganguli, V.K.R.V. Rao and others recommended along with 1958 -
Nutrition Advisory Committee of Indian Council of Medical Research (ICMR) a
national minimum for a rural Indian as Rs 20 per month at 1960-61 prices and for
an urban Indian as Rs.25 per month; ensuring energy requirements for an active
and healthy life.[ii]. This did not include expenditures on health and education,
which were to be provided by the state according to the Constitution.[iii]

Almost
a decade later in 1971 noted scholars Dandekar & Rath in their phenomenal work "Poverty in India"[iv] redefined poverty line with average calorie norm of 2,250
calories per capita per day for both rural and urban areas. This was equivalent
to Rs 14.20 per month for a rural Indian and RS 22.60 for an urban Indian at 1960-61 prices.[v]In the same year,Planning
Commission began official estimation of poverty ratio at both national and
state levels, based on consumer expenditure data of National Sample Survey
Organization (NSSO) and classification of calorie consumption cost in rural and
urban India. Thus defining poverty line in terms of calorie intake became an
accepted criterion in India, and estimation continued both with quinquinniel
and annual NSSO data based on Uniform Reference Period (30 day recall period) .

I

n 1979, a "Task Force on Projections
of Minimum Needs and Effective Consumption Demand" of the Perspective
Planning Division under Planning Commission revised poverty line as per-capita
expenditure level at which per-capita, per day calorie intake was 2400 calories
in rural areas and 2100 calories in urban areas. The Task Force used age,
sex-activity specific calorie allowances recommended by the Nutrition Expert
Group in 1968 to estimate average daily per capita requirements for rural and
urban areas using age-sex-occupational structure of their respective population.
The monetary equivalent of these norms (poverty lines), were Rs.49.09 per
capita per month in rural areas and Rs.56.64 per capita per month in urban
areas.[vi]

In 1993, another expert group was
constituted, who submitted its report under the Chairmanship of Prof. D.T.
Lakdawala on ‘Estimation of Proportion and Number of Poor’, once again resettling
the poverty line. The group recommended continuation of calorie norm for
poverty line, but with state-specific revision having following two steps,

1.For state-specific poverty line with
base year 1973-74 along with the standardized commodity basket corresponding to
the poverty line at national level, prices prevailing in each state in the base
year needs to be valued.

2.Update poverty line reflecting
current prices in a given year by applying state-specific consumer price
indices.

The Government of India accepted these
recommendations with minor modifications in 1997.[vii]

In 1990s, India made a structural
shift with its economic liberalization policy. Purchasing power was enhanced
significantly with gradual inclination for non-food consumption. Changing trend
in life-style was visible, which demanded a methodological shift in poverty
estimation. A debate aroused for conceptual change from basic calorie norm to capture
greater needs of individuals including health and education towards multi-dimensional
poverty approach. The old Nehruvian idea of poverty started replacing with
broader socio-economic needs with greater accessibility and higher aspirations
of people. In 1999, NSSO simultaneously introduced Mixed Reference Period (MRP)
method for measuring consumption of five low-frequency items (clothing,
footwear, durables, education and health) over previous 365 days recall period,
and rest of the items over previous 30 days. This was done to get a stable
expenditure pattern for non-food items, which gave a new direction to revise
the poverty line. In 2005, expert group headed by Prof.
Suresh D. Tendulkar was constituted to review the methodology for official
estimation of poverty. The Committee submitted its report in 2009 with four
major departures as follows,

1.To
move away poverty line from calorie intake norm.

2.Uniform Poverty Line Basket based on
latest available household consumption data on rural and urban population.

3.Price
adjustment procedure that is predominantly based in the same data set that
underlies poverty estimation and corrects the problems associated with
externally generated and population-segment-specific price indices with
out-dated price and weight base used so far in the official poverty estimation.

4.Explicit
provision of private expenditure on health and education in price indices which
has been rising over time, and test for their adequacy to ensure certain
desirable educational and health outcomes.

Rejecting calorie based poverty line by
Tendulkar committee was historic, which went against the long-term established
view. The general anger was that many who deserve public support to continue
its caps on the numbers of people entitled to various government benefits would
remain excluded with Tendulkar estimates. It was also being criticized on lack
of explicit normative content in poverty line. Delinking consumption poverty
from calorie norms, Tendulkar had focused on proper treatment of price
differentials over space and time, which was also recommended by Lakdawala
committee. This led to significant upward revision of estimates of rural
poverty that were attributed to faulty price adjustments in the past and
corrected many cases where the Lakdawala method unrealistically measured a
state to have much less rural poverty than urban.[viii]

To
encounter the flaws, Rangarajan Committee was formed in 2012, and submitted its
report in 2014 with latest poverty line. It not only suggested a calorie-plus
norm that increases poverty numbers beyond Tendulkar but also endorsed the view
that poverty estimates should not be used to cap entitlement to government
benefits. The new consumption basket to redefine poverty line consists of
adequate nourishment, clothing, house rent, conveyance, education and a
behaviorally determined level of other non-food expenses. The revised poverty
line has following components,

1.Food component of the poverty line
considers average requirements of calories, proteins and fats based on ICMR
norms differentiated by age, gender and activity for all-India rural and urban
regions. These nutrient norms are met for persons located in sixth fractile
(25-30%) in rural areas, and in fourth fractile (15-20%) in urban areas in
2011-12. The monthly per capita consumption expenditure on food in these
fractile classes is Rs.554 in rural areas and Rs.656 in urban areas.

2.Non-food component of poverty line
considers median fractile (45-50%) values of clothing expenses, rent,
conveyance and education expenses with Rs.141 per capita per month in rural
areas and Rs.407 in urban areas.

3. The observed expenses of all other
non-food expenses of the fractile classes that meet the nutrition requirements
are also considered as part of poverty line basket, which is Rs.277 per capita
per month in rural areas and Rs.344 in urban areas.

Thus Monthly Expenditure of Rs 972 (554
+141 +277 for Food, Four essential non food and other non food items) for a
rural Indian and Rs 1407 (656+407+344 for the same) for an urban Indian
constitute India’s new poverty lines. The Rangarajan Group uses Modified Mixed
Recall Period (MMRP) consumption expenditure data of the NSSO. The national
rural and urban poverty lines were used to derive the state-wise poverty lines
by using the implicit price derived from the quantity and value of consumption
observed in the NSSO’s 68th Round of Consumer Expenditure Survey (2011-12) to
estimate state relative to all-India Fisher price indices. Using these and the
state-specific distribution of persons by expenditure groups (NSS),
state-specific ratios of rural and urban poverty were estimated. State-level
poverty ratio was estimated as weighted average of the rural and urban poverty
ratios and the national poverty ratio was computed again as the
population-weighted average of state-wise poverty ratios.[ix]

With this latest definition, India has
made a long journey at policy level to define poverty line and to deliver
public services to the poor. Such evolving attempts are crucial and need to be
continued till the time India becomes free from such “worst form of violence”.